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Why Capitalism Works and Socialism Doesn't

Bob enjoys reading and writing about social, political, and economic issues.

Capitalism and socialism: the two structures that have divided the world on the future of society.

Capitalism and socialism: the two structures that have divided the world on the future of society.

Why Capitalism Is Good

Capitalism and socialism: the two structures that have divided the world on the future of society. Melodramatic? Maybe. But even though this title sounds like an intro to a lackluster History Channel special, I believe it's accurate.

These systems present two very different futures for our world, and both have strong supporters and opponents. I'm solidly a capitalist, and in this article, I will explain—to the best of my ability—why.


To save time and prevent later confusion, I'm going to first make clear what I mean by "capitalism" and "socialism". I've noticed a lot of label wars, and I will do my best to avoid those. Capitalists cover quite a chunk of the right and center spectrum, including everybody from moderates to libertarians to every-man-for-themselves money grubbers. Same for socialists; there is definitely a fair amount of contrast between the far left and the center.

What I mean by capitalism is a free market (governed by supply and demand) and private property, including the ownership of the means of production. What I mean by socialism is public ownership on varying levels, but always the means of production. When you go towards the extremes, there are of course far more differences, but my views deal with the more viable and debatable center. So before we go further, allow me to write a quick summary of why neither extreme works.

Why Both Extremes Fail

Like I said before, my views are comfortably in the center because going too far to either side will simply not work. Let's start with capitalism.


Capitalism, in its right-most form, is every man for himself. A capitalist society is set up so that those who work hardest and smartest (not counting get luckiest in this explanation) get more resources—which makes good sense, as until there are enough resources to accommodate everyone, there will always be conflicts of interest. The only way to get more resources, to a certain extent, is to create them, which can only be done through improving technology, like agriculture, electricity, and the Internet. If we must divide our resources, it seems reasonable to structure our system so that it provides incentives for productivity.

However, if the power of those on top is not monitored, society will quickly grow unfair, and therefore will not be stable, productive, or anything else I'd want society to be. I don't think it's necessary to delve deeply into why a winner-take-all society wouldn't be very stable, so suffice it to say: those who are starving need food, so they must take the food from those who have it, but those who have it aren't willing to give it up, so violence is the only option left for the starving (revolution!).

How would this happen? If we go to the extreme of having little or no government intervention, like no tax (estate, income, etc.), the rich would keep getting richer. As the wealthy have more resources, their children (even if less talented and/or hardworking) are far more likely to be on top, which would soon halt societal progress. Without wealth distribution, those who are born poor must remain poor. This is—for lack of a better word—bad for their happiness, as well as detrimental to all of society on several levels (stability, for one).

As the wealthy have more influence, they have connections to politicians and appointed officials—very dangerous in a representative democracy. The government must represent the entire constituency, which will certainly not be the case if the wealthy own our political processes. Votes can be manipulated through the media ($ owned), politicians can be bribed ($ owned), and the justice system will of course be skewed ($ owned).

Factor in corporations. Without regulatory interference, companies can and will quickly build up monopolies that can drive prices far beyond the product's value, rendering the free market system of supply-and-demand useless. Basically, products necessary for everyone will be in the control of only a few. Without government to check them, those who are greediest and most selfish will rise highest in society.

I believe in human goodness, but it's hard to doubt the existence of greed and avarice. As history has proved, wealth and power can corrupt, and if some are given both without any checks on potential abuse, I can't imagine society will last long.


Far-left socialism is no less dangerous. Though I think the socialist ideal of worldwide and local cooperation is good, the socialist model is not the way to do it.

The problem with the really far left model, involving equal work and equal distribution, has already been discussed in depth by many, so I will only cover it briefly. I suppose that it once seemed like a better alternative to capitalism gone wild (it prevents the wealth gap and the consequent abuse of the $-owned government), but the society based on this model quickly collapses. Look at Communist China, Cuba, or to a certain extent, today's Europe. Europe is still great, but the cracks are starting to show.

The two major reasons are:

  1. Socialism discourages work and effort by shifting consequences (positive and negative) onto others.
  2. Socialism restricts the freedom of the individual.

I'll begin by addressing the first. By having a "security net" so secure that it's easier to not work than to work, nobody (well, few) will work. In a future world of more resources, perhaps that will become possible. But we are not even close to being there yet, and this system is unsustainable as it takes from those who would advance society and gives to those who don't.

The entire point of a security net is to make sure those who are deserving have the ability to exercise their potential (Note: I am aware that the ultimate point is to allow the happiness of everyone. I mean in the sense of its function in a developing society.) Why work your hide off to drag along those who are just kicking back? This system encourages laziness, and after a while, even those who naturally would work will stop because of their unjust load.

This problem with socialism has a solution: move towards the center. By arranging society so that those who work harder, smarter, more creatively, and more productively are rewarded, all of society will ultimately benefit from their advances. If a safety net is retained—and it should be—downward spirals can be prevented and a basic standard of living can be available to all.

However, problem two (that socialism restricts the freedom of the individual.) is not so easily solved. In fact, I can't think of a solution at all. I believe this is socialism's fatal flaw, and it's basically the reason I am a capitalist. I will address this in detail later on when it flows more appropriately.

Neither extreme works.

Neither extreme works.

Solutions in the Center

Clearly, there are problems once society leans too far in either direction. When I say I'm capitalist, this does not mean I'm advocating a far-right government that will quickly grow corrupt and unfair. However, even though I see problems in the capitalist model, I see more flaws in the socialist one—and those cannot be resolved except by adjusting socialism so much that it becomes capitalism. The flaws in capitalism can be addressed, but ultimately, the problems with socialism are fundamental.

Addressing Flaws in Capitalism

Let me begin with how to address the flaws in capitalism. The most prominent problem is the wealth gap and its consequential injustice (wealthy owning democratic process, lack of social ladder). This needs to be addressed through a better wealth distribution system, to allow all individuals the potential, regardless of the circumstances they were born into, to earn the best society can offer. This involves taxes, including income tax, sales tax (though exempting necessities like food and rent), and especially estate tax. I think how high specifically those need to be is best left to those who know economics better than I do, so I won't give any specific opinions there.

Some seem to think that taxation of any sort is unfair; however, taxation is necessary (as mentioned above) to prevent the wealthy and corporations from monopolizing and owning the democratic process, which would quickly make society unjust and unproductive. The money from taxes would go to a tight safety net preventing downward spirals and enabling upward mobility, preventing the wealth gap from growing too large while still providing benefits for those who work and contribute versus those who don't.

Even if we had a good wealth distribution system, however, I believe the problem would remain with the wealthy ultimately owning the democratic process. The role of the government should be to work without bias for the happiness of all the people, and that will not happen if a section of the population has greater influence. The representatives in representative democracy are not infallible or necessarily virtuous, and money can corrupt the process and consequently the society. The government being transparent would help the problem, but over time I think money will cloud the transparency again.

In order to work and not collapse into majority over the minority, it would take a great deal of reform (centuries perhaps) in public education and especially in culture, so I'll leave it as just food for thought for now.

Flaws in Socialism

I'll move on to the flaws I see in socialism. I'm certainly not the first to point these out, but it doesn't hurt to reiterate them. Let's begin with problems involving the government. The most apparent problem today is the democratic government not being democratic, whether because of corrupt politicians or the machinations of the rich. (I think that's resolvable through a great amount of time and effort, but, as mentioned above, that's for another article.)

But even if we assume that the democratic government is functioning as it should, fairly and (most importantly) transparently, there is still a problem if there is no private property. The problem is that society will have no protection of individual rights and will denigrate into a tyranny of the majority over the minority.

This was exactly what America's founding fathers were trying to prevent with a representative democracy. Because the "common hordes" were "uneducated and incapable" of placing the "correct" vote, representatives would help them along. Now, I think the "common hordes" are ready to truly evolve into a democracy, but this would not be a good thing if the evolution was done without safeguards. Too much power leads to abuse, whether intentionally or unintentionally; in this case, it would be too much power in the hands of the majority. Whether a direct democracy is a good idea or not is for another discussion (I think it's an idea that has potential in today's world.), but abolishing private property is a terrible idea.

Clearly, if the majority (with transparency, this would be effectively the same thing as the government) would destroy individual rights if it had control over individual property. Let's leave aside means of production for now. Simplistic example: Individual enjoys black licorice, while the majority does not enjoy black licorice. The majority is not altruistic or doesn't understand the individual's love of black licorice. The individual is unable to get black licorice, as the ingredients and means of production belong to the group, and therefore the majority controls the black licorice.

For the socialist model to work, the majority has to be both altruistic and empathetic. I'm not saying that's impossible, or that it doesn't sometimes happen. But I don't think it is a good idea to place responsibility and consequences of individual actions onto all, as that causes:

  1. Lack of motivation to work
  2. Lack of freedom, and consequently
  3. Lack of happiness in society. To do so makes society incredibly unstable. I can't think of a way for freedom and individual autonomy to survive in a society where all are one, and consequences and rights are not conferred onto the individual, where I wholeheartedly believe they belong.

Means of Production

Moving even closer to the center, the ownership of the means of production is the final thing I want to address. My reasoning against common ownership is the same as my reasoning for individual property. In addressing essential items, like agriculture, common ownership would give the majority an incredible amount of leverage. Products necessary for all must be available for all, and I'm afraid that would not happen fairly in a society that has no safeguards for individual rights.

Once society culturally evolves and more people gain an understanding of both the mechanics of the world and also of a common goal, perhaps then we could discuss public ownership of large, national industries, like mines and farms. But that would require a great deal of reform in public education and government transparency, and neither of those should be rushed. The means will be everything in creating a stable, happy society. I don't believe we are yet ready for any venture into the left.